Binance’s CZ got a four-month prison sentence.
“There’s no evidence that the defendant was ever informed” of illegal activity at Binance, the judge said.
SEATTLE — Changpeng “CZ” Zhao, the founder and former CEO of cryptocurrency exchange Binance, was sentenced Tuesday to four months in prison.
U.S. Judge Richard Jones immediately sounded skeptical during a hearing of the Department of Justice’s arguments for a years-long sentence.
“There’s no evidence that the defendant was ever informed” of illegal activity at Binance, the judge said in a Seattle courtroom, before saying he disagreed with the U.S. Department of Justice’s recommendation for an increase from the baseline sentencing guideline of 10 to 16 months in prison and up to three years of supervised release.
“The court finds the defendant has accepted responsibility,” the judge said. “Everything I see about you and your characteristics are of a mitigating nature,” the judge said to Zhao as he began to read through his order.
A court document released after the hearing concluded also notes the judge recommended Zhao serve his sentence at the Federal Detention Center, SeaTac, though the Bureau of Prisons will make a final decision. The Probation and Pretrial Services Office will set a reporting date for Zhao to surrender himself.
Zhao, with buzz-cut hair and wearing a navy blue suit and light blue tie, learned his fate accompanied in court by his mother, sister, nephew and son. Zhao’s plea deal last year saw him agree to pay a $50 million fine, a small fraction of his estimated net worth. Bloomberg reported Monday that he might have some $43 billion in assets to his name.
“I think the first step to taking responsibility is to fully recognize the mistakes. Here, I failed to fully set up a [know-your-customer program],” Zhao said moments before hearing the judge’s decision. “I also recognize the importance of having a robust KYC/[anti-money-laundering] program. That is why I directed Binance to cooperate with the U.S.’s investigation.”
The former head of the world’s largest cryptocurrency exchange pleaded guilty in November to one count of violating the Bank Secrecy Act, a charge that might normally carry up to 10 years in prison. But his guilty plea and cooperation reduced that. A presentence report filed by the court’s Probation Office recommended he spend just five months in prison.
Prosecutors and defense lawyers had vastly differing recommendations: The DOJ asked a federal judge to sentence Zhao to three years in prison, twice what was laid out in his plea agreement. His defense, on the other hand, asked for no prison time, suggesting he just get probation.
His sentence contrasts with the 25-year penalty his former rival, FTX’s Sam Bankman-Fried, recently got.
Binance agreed to pay a $4.3 billion fine the same day Zhao pleaded guilty last year. The agreement also saw him step down from the exchange he’d founded in 2017.
A prosecutor argued Tuesday that the Bank Secrecy Act guidelines were too lenient, pointing to Binance’s huge size as evidence for why Zhao should spend a “meaningful” amount of time in prison, if not three years.
“If Mr. Zhao does not face incarceration after deliberately and willfully planning to violate U.S. law to build the largest crypto exchange in the world and get rich in the process … then no one will face incarceration and the BSA will for intents and purposes be a dead letter,” a prosecutor said Tuesday.
The judge should be able to infer Zhao’s understanding of any illicit activity occurring on his platform, even in the absence of specific evidence, the prosecutor said.
Zhao’s defense attorneys pointed to a lack of precedent in arguing for no prison time at all, saying there have been no cases with similar circumstances where a defendant was incarcerated. The U.S.’s previous case against BitMEX founder Arthur Hayes was one such example, the defense said.
Moreover, Zhao cooperated with the U.S. government, one defense attorney argued, saying this cooperation was “well-documented” and even acknowledged by the DOJ.
UPDATE (April 30, 2024, 20:40 UTC): Adds updates throughout, including court document filed after the hearing ended.
